Funds will be able to execute defaulted mortgages faster in Spain

The National Direction of Registries and Notaries confirms that the latter should expedite a new copy of the Mortgage of a property to execute when an investor purchases a defaulted loans portfolio.
Investment funds that have purchased defaulted debt portfolios to banks will be able to recover their investment faster via the execution of mortgage guarantees. The National Direction of Registries and Notaries (DGRN) just issued an important resolution that reminds notaries have the faculty to “expedite another copy with executive purpose or force of a public deed of loan or any other operation guaranteed with a mortgage over a registry plot” when the petitioner did not previously obtain it.
Until now, these investors saw how, after purchasing the defaulted portfolio, and they became the owners of the loans, the recovery strategy was hindered, to the point of being stretched for years.
The reason is that investors cannot locate or obtain a copy of the Mortgage with executive effects from the financial entity that transfers the loans. This is the class of document that is legally requested in Spain to execute the Mortgage in the swiftest and most privileged, as explained by Mr. Juan Verdugo, partner at the restructuring and insolvencies department in Garrigues, the firm that reached this resolution.

New scenario

It’s a fairly common situation, considering the restructuring of the Spanish financial system and the credit transfer between entities in the last few years. Furthermore, this problem has made the Spanish distressed debt market lose competitivity compared to neighboring countries, and it is especially a variable that impacts negatively on the price paid by investors by the loans if the financial entity transmitting them cannot locate in their files and deliver to the investor the copy with executive effects of the Mortgage deed.
Even the DGRN recognizes, in a prior resolution, that the event of the credit disposal as wholesale or in portfolios is relatively recent”, a reason for the lack of homogeneous response to the recovery intentions from the investors.
The final results is that investors discount the price that they pay to entities for the time and the costs of pursuing other legal paths, slower and with a much more uncertain result, that also does not grant access to the mortgaged asset, when precisely that document is the guarantee for the creditor in case of a default.

Binding query

After a set of meetings with the most relevant Servicing entities in the Spanish market -that manage the recovery of 176 billion Euros of defaulted debt-. Garrigues detected that no clear directive existed permitting notaries to expedite another copy of the Mortgage with executive effect, in favor of the defaulted loans’ purchasers.
In this context, the firm decided to raise a query, which resolution is binding before the DGRN in the representation of ten of the largest Servicing entities of the Spanish market.
In its reply, the DGRN inclines in favor of the rights of these investors in defaulted debt, and thus, new creditors of those loans, availed by mortgage guarantees, providing them with a path to obtain a copy of the document that gives them a fast access to the execution or auction, and in due case, the awarding of the real estate asset.
In its resolution, dated June 28th, the DGRN confirms notaries may expedite without further issue a copy with executive effects in favor of the fund purchasing the defaulted debt portfolios guaranteed with a real estate Mortgage if that investor did not obtain one before.
Also, Mr. Verdugo explains, the DGRN doesn’t just confirm all the points of the query, but also stresses that “this new criterion will mean the shortening of times in the execution of the Mortgage loan by the investors, which favors the credit market and reinforces the Mortgage as the best guarantee to access to the value of the mortgaged asset.

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